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21 Jun 2013
Flash: US setting the price of debt – Deutsche Bank
FXstreet.com (New York) - According the Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “Much of the world ex-US is still levering (i.e. issuing more debt relative to activity) and hasn't started the de-leveraging process yet.”
The problem being that the US tends to set the price of debt everywhere. Indeed treasury yields tend to be the first building block for the price of all assets globally. In this debt super-cycle that's still rolling due to the authorities' benevolence post 2009, we need there to be ultra low interest rates for longer than most people imagine. The Fed's previous policies have also created a global liquidity monster that is difficult to just walk away from with limited consequences.
The good news is that no error has been made yet and the next few weeks of potentially volatile markets could keep the Fed on hold for longer than they and the market now think. However the tapering genie is out of the bottle and they'll struggle to put it back in now so risk premium will struggle to get back to the pre-JEC levels in a hurry. “We'd expect a difficult few weeks for risk followed by a realization that the pace of tapering will actually be slower than flagged on Wednesday which in turn will eventually provide some good buying opportunities before the summer is out.”
The problem being that the US tends to set the price of debt everywhere. Indeed treasury yields tend to be the first building block for the price of all assets globally. In this debt super-cycle that's still rolling due to the authorities' benevolence post 2009, we need there to be ultra low interest rates for longer than most people imagine. The Fed's previous policies have also created a global liquidity monster that is difficult to just walk away from with limited consequences.
The good news is that no error has been made yet and the next few weeks of potentially volatile markets could keep the Fed on hold for longer than they and the market now think. However the tapering genie is out of the bottle and they'll struggle to put it back in now so risk premium will struggle to get back to the pre-JEC levels in a hurry. “We'd expect a difficult few weeks for risk followed by a realization that the pace of tapering will actually be slower than flagged on Wednesday which in turn will eventually provide some good buying opportunities before the summer is out.”